Double-digit house price inflation has been caused by a combination of low interest rates, relatively high disposable household income and the popularity of property as an investment when stock markets have performed poorly.

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According to the Bureau of Economic Analysis, spending by households on many of modern life's "basics" food at home, automobiles, clothing and footwear, household furnishings and equipment, and housing and utilities fell from 53% of disposable income in 1950 to 44% in 1970 to 32% today.

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For instance, in France and Germany, household shareholdings are equivalent to less than 20% of their annual disposable income, compared with 100% in America and 65% in Britain.

ECONOMIST: On the edge | The

Peter Hooper and Torsten Slok of Deutsche Bank reckon that if saving stays at about 6% of income, write-offs remain near today's elevated level and household income rises by 4.5% a year, household debt will fall from 126% of disposable income now to around 85%, where it was in the early 1990s, by 2013 (see chart 3).

ECONOMIST: The American economy

With household debts equivalent to a high 160% of disposable income, and with shoppers' spending power being reduced by inflationary pressures greater than we've seen for 20 years, consumers are cutting back on all but essential purchases.

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Household debt reached more than 120% of disposable income in UK, Canada, the US and Japan by the time the financial crisis struck in 2008.

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